SEC chairman seeks compromise on international swaps regulation | Buy side awaits improved collateral-management processes | Report: Futures hedging will be contingent on liquidity level
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March 25, 2013
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Banks using CDS to cut capital requirements might face levy
The Basel Committee on Banking Supervision has proposed levying a charge on financial institutions that use credit default swaps to reduce capital requirements. The committee acknowledges that CDS can effectively manage risk but says banks should appropriately recognize the cost in their capital buffers. Reuters (3/22), Financial Times (tiered subscription model) (3/24)
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SEC chairman seeks compromise on international swaps regulation
Securities and Exchange Commission Chairman Elisse Walter wants domestic regulators to rely on international rules for cross-border swaps when they are equivalent, while preserving U.S. regulators' right to impose their rules when no comparable ones exist. "The domestic regulator would continue to have the ability to apply certain key policy requirements of local law when foreign law does not impose comparable requirements or provide comparable protections," Walter said. Reuters (3/25), Bloomberg (3/24)
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Industry News and Trends
Buy side awaits improved collateral-management processes
Collateral-management processes for the buy side aren't yet affordable enough or fast enough to deal with new rules for derivatives, fund managers say. "Collateral management arrangements are currently being worked on [by custodians], but they are not available today to us from either a European context or U.S.," BlackRock's Supurna VedBrat says. Financial News Online (U.K.) (subscription required) (3/25)
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Report: Futures hedging will be contingent on liquidity level
The regulatory overhaul in the derivatives market initiated by the Dodd-Frank Act will encourage market participants to use swaps futures as a hedging instrument, but only if they trade with enough volume to provide liquidity, a Finadium report says. "Swap dealers will be incentivised to use swap futures for their margin efficiencies -- lower initial margin than cleared [over-the-counter] swaps and cross-margining with other products traded and cleared by an exchange -- but will only stay if there is liquidity," the report says. The Trade News (U.K.) (3/21)
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Regulatory Roundup
Choice in OTC derivatives reporting is fine, ESMA says
The European Securities and Markets Authority has released guidance that says reporting of over-the-counter derivatives doesn't have to be performed by the same entity that cleared the transaction. The Commodity Futures Trading Commission is in a dispute with market participants regarding the same issue. The Trade News (U.K.) (3/22)
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Split starts to emerge over European transaction tax
Officials involved in negotiations for a proposed tax on financial transactions in 11 EU nations are struggling to agree on the implementation timeline, possible exemptions and the scope of the levy. "The member states are divided; there is no unity about what the FTT will cover," said James Hughes, an account manager at Cicero. Many public-affairs experts are predicting that European leaders will rein in the tax. Financial News Online (U.K.) (subscription required) (3/25)
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Financial rule-writing is targeted in Senate budget amendments
Republicans are seeking to curtail the financial rule-writing ability of the Federal Deposit Insurance Corp. and the Securities and Exchange Commission through additions in the Senate's budget plan for fiscal 2014. Nonbinding amendments in the plan seek to require agencies to place more focus on economic outcomes of new rules. The New York Times (tiered subscription model)/DealBook blog (3/22)
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Commentary: Lawmakers err in weakening Dodd-Frank
Mike Konczal of the Roosevelt Institute questions the wisdom of the House Agriculture Committee's move last week to adjust the Dodd-Frank Act. "[T]hese rules are a bad idea, especially when financial reform is still being implemented. Lawmakers should realize that they would be dismantling important parts of the bill, rather than tinkering along the edges, if these proceed," Konczal writes. The Washington Post/Wonkblog (3/23)
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I love those who can smile in trouble, who can gather strength from distress, and grow brave by reflection. 'Tis the business of little minds to shrink."
-- Leonardo da Vinci,
Italian artist, scientist and writer
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